In a development that has left economists cautiously optimistic and airline executives visibly relieved, the oil price has tumbled to its lowest level in over two weeks, fueled by renewed hopes of a breakthrough to end the eight-month Iran war.

Brent crude, the international benchmark, dropped by more than 6.5% to as low as $105.55 a barrel on Monday - the lowest since 16 October - sending shares in airline companies soaring and pushing down government borrowing costs. The sudden dip came after Tehran revealed that contacts between Iran and the US to end the conflict were continuing, with Iranian foreign minister Abbas Araghchi stating via state media outlet IRNA: "Consultations through mediators are very intensive. We have presented our conditions and proposals and everything depends on the political rationality of Washington."

Over the weekend, Qatari officials attempted to negotiate the release of more than $6bn (£4.5bn) in Iranian assets, a move that could persuade Tehran to reopen the strait of Hormuz. Meanwhile, Donald Trump had earlier struck a belligerent tone, telling voters in Iowa on Sunday that Iran would receive "the hammer" unless there was progress. "The only reason why I'm not finished with Iran is I want to be nice. I want to try and save all those lives if I can ... But at some point we're going to have to give them the hammer," he said during a campaign rally ahead of the US midterm elections.

Investors, however, were cheered by reports on Monday that Iran's supreme leader, Mojtaba Khamenei, had granted "powers" to his government in its talks with the US seeking to end the Middle East war. Chris Beauchamp, chief market analyst at IG, noted: "The news is manna from heaven for stock markets, which have felt increasingly pressured by oil's rise, but of course there is still a risk that Trump will try one last throw of the iron dice after the midterms."

The drop in oil prices sparked hopes of a break in the inflationary pressures gripping the global economy. Government borrowing costs fell, with the yield on 10-year UK bonds down 10 basis points (0.1 of a percentage point) to the lowest since 22 September. Shares in British Airways' parent company, IAG, rose by 4.2% in London, while United Airlines jumped 7% in New York - proving that nothing lifts spirits quite like the prospect of peace and cheaper jet fuel.